SCOTUS in Kirtsaeng: First sale doctrine applies to copies made overseas

by Daniel Gervais on Tuesday, March 19th at 4:55 PM

Kirtsaeng is a Thai national studying at Cornell. He bought and imported copies of textbooks published by Wiley Asia and tried to resell them in the United States, where similar books published by Wiley (US) were sold at a higher price. Wiley sued, saying the copies were infringing. Kirtsaeng argued that the books could be sold in the United States because the right to control sale was exhausted under  the “first-sale doctrine”). The doctrine is codified in section 109(a) of the US Copyright Act and applies to works “lawfully made under this title.” The question, therefore, was whether the books sold in Thailand (with Wiley Asia consent) were “lawfully made under” the US Copyright Act.

The Court’s majority said, in summary, that Kirtsaeng was right: “Wiley reads ‘lawfully made under this title’ to impose a geographical limitation that prevents §109(a)’s doctrine from applying to Wiley Asia’s books. Kirtsaeng, however, reads the phrase as imposing the non-geographical limitation made ‘in accordance with’ or ‘in compliance with’ the Copyright Act, which would permit the doctrine to apply to copies manufactured abroad with the copyright owner’s permission. Section 109(a)’s language, its context, and the ‘first sale’ doctrine’s common-law history favor Kirtsaeng’ s reading. …Section 109(a) says nothing about geography. ‘Under’ can logically mean ‘in accordance with’.”

The distribution right (§106(3)) and the importation right (§602(a)(1)) could have applied to Kirtsaeng. Under the former, if a copy is made with the copyright owner’s consent then it does not infringe 106(3) under the first sale doctrine. Hence, a book made abroad and imported with the US copyright owner’s consent (for example if Wiley US imported books made in Asia), then the first-sale doctrine would apply after the first US sale. The harder question was whether the book made abroad (legally in that country) also exhausted the importation right. The Supreme Court had held that  the importation right was subject to the same limitation as §106(3) in the Quality King case in 1998. Quality King was a different fact pattern. It “involve[d] a ‘round trip’ journey, travel of the copies in question from the United States to places abroad, then back again.”

As I read it, the majority in Kirtsaeng is saying that the US copyright law “applies” (and therefore foreign copies are legal “in accordance with” it) to foreign made copies because a foreign work and/or foreign author are protected in the United States (under Berne and TRIPS national treatment rules) from the moment a work is created, even overseas.  The same rule must apply to the first-sale doctrine.

The most interesting part of the majority opinion is probably the discussion of international exhaustion (internatiomnal exhaustion is the practical impact of the case). It is worth quoting:

“[T]he Constitution’s language nowhere suggests that its limited exclusive right should include a right to divide markets or a concomitant right to charge different purchasers different prices for the same book, say to increase or to maximize gain. Neither, to our knowledge, did any Founder make any such suggestion. We have found no precedent suggesting a legal preference for interpretations of copyright statutes that would provide for market divisions. To the contrary, Congress enacted a copyright law that (through the “first sale” doctrine) limits copyright holders ‘ability to divide domestic markets*. And that limitation is consistent with antitrust laws that ordinarily forbid market divisions…Whether copyright owners should, or should not, have more than ordinary commercial power to divide international markets is a matter for Congress to decide. We do no more here than try to determine what decision Congress has taken… [T]he dissent and Wiley contend that our decision launches United States copyright law into an unprecedented regime of ‘international exhaustion’. But they point to nothing indicative of congressional intent in 1976. The dissent also claims that it is clear that the United States now opposes adopting such a regime, but the Solicitor General as amicus has taken no such position in this case.”

*Note the circularity of the argument (just before the *).  How can contracts divide markets if international exhaustion applies?  Would a mention on a book cover such as “not for resale outside of ___” be enforceable in the United States? Presumably, valid contract formation in such a case depends on the law of each country. Or will right holders ask their resellers in foreign markets instead not to sell more than x copies at a time?

Clearly the US government internationally has pushed for national exhaustion, including in TRIPS, and this opinion is going to make that difficult.   Moreover, the reference to antitrust is this context is going to raise a few eyebrows.

There are two separate opinions.  In her concurrence, Justice Kagan makes the interesting point that the full application of international exhaustion is not because of the court’s opinion in Kirtsaeng, but rather the fact that the first-sale/109 limit applies to the importation right (in 602(a)) under Quality King. If limited to the right of distribution in 106(3), first sale would allow resale in the US of a legally imported copy made abroad, but not the importation of the copy made abroad without the US copyright holder’s consent. In her view, Quality King should be limited (presumably to reimports) and thus would limit first sale to copies made abroad but imported into the United States with the US copyright owner’s consent. This would greatly reduce the impact of the majority (5 justices) opinion.

Justices Ginsburg, Scalia and Kennedy (an interesting group based on the traditional left/right view of the Justices) found the approach of the majority “absurd” because the US statute does not apply extraterritorially. A copy made aboard is thus not lawfully made under US law. Justice Ginsburg reviewed the legislative history of §602(a) and the US position on exhaustion, and concluded that the right of importation must apply to copies made abroad.  Quality King should thus be read narrowly because it was a reimport situation–the copies had originally been made in the US. She seems close to Justice Kagan on this point.

Then the US statute does seem to suggest that 602(a) applies to foreign made copies. For example, as Justice Ginsburg notes, §602(a)(3)(C) permits “an organization operated for scholarly, educational, or religious purposes” to import, without the copyright owner’s authorization, up to five foreign-made copies of a non-audiovisual work— notably, a book—for “library lending or archival purposes.”

The practical impact of the majority opinion is probably going to (a) alter the US position on national exhaustion in international debates; (b) prompt a call from the White House for congressional action to modify §602(a); (c) possibly limit the availability of books that previously sold in the United States for a much higher price than in overseas markets, because price discrimination will become very difficult to enforce; and (d) maybe encourage a faster move towards online textbooks because first-sale is much harder to apply in that context.

 
 
 

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